December 4, 2022

What are STOCKS?

A Stock is a share of ownership of the company. As the owner of the stock i.e. stockholder you have hold over companies assets and earnings.

Suppose Ravi is starting a company, “Ravi Bakes”. He needs Rs100,000 but he doesn’t want to borrow from bank. Instead Ravi invests Rs10000 of his own money and finds 9 other investors who are willing to invest Rs10000 each. In return he gives each investor a certificate that represents 10% of his company. Each certificate represents 10% of the company’s assets, the building, the pie pans, and the baking materials and 10 % of any future earnings. After 1 year the company is doing well and the companies total value increases to Rs200,000. This means each share of the company is now worth RS20,000. Rs200,000 divided by 10 equals Rs20000; that’s twice the original share of Rs10,000. The original investor can sell their stock in company to other investors for 100% profit. This is how stock works. Stocks are bought and sold daily on major exchanges (like NASDAQ, NYSE, BSE).

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